When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 30x, you may consider Yusys Technologies Co., Ltd. (SZSE:300674) as an attractive investment with its 25.6x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Yusys Technologies certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

How Is Yusys Technologies' Growth Trending?

In order to justify its P/E ratio, Yusys Technologies would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered a decent 8.6% gain to the company's bottom line. However, this wasn't enough as the latest three year period has seen an unpleasant 31% overall drop in EPS. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Shifting to the future, estimates from the nine analysts covering the company suggest earnings should grow by 26% per year over the next three years. Meanwhile, the rest of the market is forecast to expand by 25% per year, which is not materially different.

In light of this, it's peculiar that Yusys Technologies' P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

The Final Word

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

Our examination of Yusys Technologies' analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

Having said that, be aware Yusys Technologies is showing 1 warning sign in our investment analysis, you should know about.

Of course, you might also be able to find a better stock than Yusys Technologies. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com